By Reuters&bullet;
last updated:
19/09/2017

By Alex Lawler and Rania El Gamal
LONDON/DUBAI (Reuters) – Saudi Aramco will be able to release its audited financial accounts in early 2018 if the government decides on a venue for listing the oil giant’s IPO and finalises several reforms this year, three sources said. (For a graphic on Aramco’s suitors click http://tmsnrt.rs/2jr9BCY)
It will be the first public earnings disclosure for Aramco and one of the most important internal milestones in preparing for the initial public offering (IPO), which is expected to raise as much as $100 billion (£74.07 billion).
The Saudi government has said it wants the sale of five percent of Aramco to take place before the end of 2018. A Saudi government source said the share sale was on track.
Releasing the 2015-2017 accounts in the first quarter would be a major step towards sticking to the 2018 goal although the IPO’s timing depends on several external factors, the sources said.
“Aramco will have its 2017 results by the first quarter, the audited accounts will be available then, so the IPO could happen after that,” one of the sources said.
The sources said internal accountants would send the 2017 accounts to external auditors when they have finished work on them at the beginning of next year. The auditors – named by Aramco as PwC, EY and BCG – have already audited the 2015 and 2016 accounts. They have never been released.
The auditors and Aramco would first prepare a report on the accounts for all three years that it could share with a group of prospective large investors. They would then prepare a full prospectus which would be available to all investors.
The accounts for 2017 would be done to reflect Saudi’s new taxation system while the two previous years would be done on a pro-forma accounting basis.
However, it would make sense to release the accounts only after the government has decided where the listing will take place as different venues use different accounting standards, the sources said.
For example, a listing in New York would require the accounts to be prepared according to US GAAP standards whereas IFRS standards would be acceptable for a listing in London, Hong Kong or Singapore.
Aramco has so far prepared the accounts according to IFRS standards, but can quickly convert those to U.S. GAAP if the government decides to list in New York, a second source said.

DECISION-MAKER
The IPO is a centrepiece of Vision 2030, an ambitious reform plan to diversify the Saudi economy beyond oil which is championed by Saudi Crown Prince Mohammad bin Salman.
He has sweeping powers over defence, energy and the economy and is expected to take the final decision about Aramco’s listing venue and the other reforms.
The accounts also cannot be finalised until the government has finished the reform of domestic fuel price subsidies.
These are currently funded by Aramco. Under the planned reform, the government will pay for the subsidies, the sources said.
This would boost Aramco’s valuation and make it more attractive to investors ahead of the IPO as it could mean a higher dividend. The government has also yet to decide on Aramco’s dividend policy.(For a graphic on possible Aramco valuations click http://tmsnrt.rs/2fH0rkr)
A third source said those decisions need to be taken by the fourth quarter of 2017 to keep the IPO on track: “That would keep the company on track to list by the second half of 2018. Aramco can be ready for next year. The ball is in the government’s court now.”
In a statement to Reuters, Aramco said: “The options review process for the IPO is well underway and on-track. There are no plans to release detailed financial statements in 2017.
“It’s important to emphasize that we have been sharing detailed operational and financial performance data with our current shareholder. We will continue this practice with any future shareholders post listing.”
The company will run its 2017 accounts under tax arrangements which were revised by the Saudi government to make the company more competitive with listed peers.
“Aramco is operating the accounts under the new system internally,” the first source said.
The government set a new 50 percent tax rate for the firm in March. Previously, Aramco had paid 85 percent tax, plus a 20 percent royalty levied.
The two other sources confirmed the company could be ready to release accounts in early 2018.
“Once the financials are ready they can create a confidential information memorandum which they can then take to anchor investors such as sovereign wealth funds and start the bookbuilding with banks,” the second source said.
The timing of the IPO will also depend on getting legal and regulatory approval from the jurisdictions it opts to list in.
It could also be influenced by the oil price — currently below $60 per barrel – a price Saudi officials have identified as a good level.
(Additional reporting by Ron Bousso, Writing by Dmitry Zhdannikov; Editing by Anna Willard)

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